"Klarna, a leading global retail bank, payments and shopping service, today revealed that six out of ten credit card users don't know how much interest they are charged, according to Yougov research commissioned by Klarna." Additionally, not a single respondent was able to correctly calculate how much a typical credit card purchase would cost after interest is taken into account. This is despite credit card companies following strict disclosure rules laid out in the FCA’s rulebook and despite being regulated.
The findings have led Klarna and Fairer Finance, a consumer-interest body, to today call on the industry to review disclosure rules for regulated finance.
“It is shocking that well over half of credit card users don’t know how much interest they are paying on their purchases,” said Alex Marsh, Head of Klarna UK, “It is vital that consumers understand the basic terms of their credit agreements, even more so at a time when household budgets are under massive pressure, and credit card companies are charging record-high interest rates.”
James Daley, Managing Director of Fairer Finance, commented: “Credit cards are incredibly complex products, with layers of different interest rates and charges. This latest research proves what we’ve long suspected - that the majority of customers struggle to understand exactly what they’re being charged. This situation is made worse by an out of date set of regulations, which force card companies to bombard customers with a range of jargon-filled documents and disclosures during the application process. The Consumer Credit Act and FCA regulations need to be urgently reviewed and replaced with more effective rules that ensure customers are given the information they need, at the right time, and in a format and language that they can understand.”
Klarna worked with YouGov to present 2,000 British consumers with a typical credit card sign-up flow and asked them to calculate the total cost, including interest, of a typical purchase. Not a single respondent was able to calculate the amount correctly.
In contrast, the research showed that consumers understand the headline terms and conditions of BNPL products better than they do credit cards. Having reviewed a Klarna BNPL check-out page, 7 out of 10 of respondents said it was clearer when they needed to repay, and only a quarter (26%) said it was clear when they needed to pay a credit card to avoid additional charges.